Introducing the Geopolitical Economy Hour

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Radhika: Hi everyone, and welcome to this Geopolitical Economy Hour. I’m Radhika Desai.

Michael: And I’m Michael Hudson.

Radhika: Every fortnight we are going to meet for an hour to discuss major development in the fast-changing geopolitical economy of our twenty-first-century world. We’ll discuss international developments. We’ll discuss their roots in individual countries and regions. We will try to uncover the reality beneath the usually distorting representation of these developments in the dominant Western media.

We plan to discuss many subject — inflation, oil prices, de-dollarization, the outcome of the war over Ukraine which is going to determine so many things, the threats the U.S. is making against China about Taiwan, China’s increasingly prominent role in the world, how China’s Belt and Road Initiative is going to reshape it, how Western alliances and the Western-dominated world that was built over the past couple of centuries is so rapidly fracturing. We’ll discuss financialization, the West’s productive decline. Many important things. Michael, am I leaving any important things out?

Michael: Well we’d been talking about this for many decades. Already in 1978 I wrote a book, Global Fracture, about how the world is dividing into two parts. [At] that time, other countries [were] trying to break free so they could follow their own developments. But today it’s the United States that is isolating other countries — not only China, Russia, Iran, Venezuela, but now the Global South — so the United States has ended up isolating itself from the rest. What we’re going to talk about is how this is not only a geographic split, but a split of economic systems and economic philosophies. We’re going to talk about what the characteristics and the policies [are] that are shaping this new global fracture.

Radhika: Indeed, Michael and my collaboration goes back a couple of decades. In fact, even before we met I had read books like Global Fracture [and] [Super-Imperialism](, which were quite prescient, and with which I agreed. [Unlike] all those people talking about globalization and U.S. hegemony, Michael could see, and I also could see, the fractures underlying the system. My own approach has been characterized by such skepticism about enduring Western dominance, U.S. hegemony, Dollar Dominance, etc. And after thinking and writing about small bits of it for a couple of decades I eventually came up with this book, Geopolitical Economy from which Ben [Norton] has also taken the title of the Geopolitical Economy Report with which of course we are collaborating.

In Geopolitical Economy I question the dominant cosmopolitan understandings of the world. In ‘globalization discourse’ the world is seamlessly united by markets. In ‘American hegemony discourse’, or ‘hegemony-stability discourse’, the world is united by a single leading power. None of these narratives are really true, and the advance of multipolarity, which I’ve argued goes back at least to the 1870s, continues apace. Of course today [multipolarity] is in a very rapidly advancing phase and we are looking at some major changes in the world order.

We are going to be discussing all these things, but today, for our opening show, what Michael and I thought we might do is [to] introduce the big idea [that] frames our thinking, which is the advance of multipolarity — [that is,] the difficulty of retaining Western dominance. The difficulty is so great that not only are [the West’s] attempts to preserve this dominance futile, but they are even counter-productive, like [the] conflict over Ukraine or many other things that are actually boomeranging [back] on the West, like financial sanctions against Russia. So we basically want to talk about this big idea, the emergence of the multipolar — or some might even say a bipolar — world order.

Michael, do you want to start off with some reflections on that?

Michael: I think the most obvious driving force that’s splitting the world is the U.S. attempt to create a unipolar world under its control, [particularly] its national security diplomats and financial interests. They insist on monopolizing the international finance system so that if countries try to follow a policy that supports their own development, the United States can simply pull the plug and block their financial transactions. The U.S. tries to control the oil trade. Oil has always been, for the last century, a centerpiece of American diplomacy, because if the American oil companies (along with British Petroleum and Dutch Shell) can control the oil, then they can turn off the power, and the lights, and the transportation, of any country that is not following the U.S. plans for a world order.

And also food. The United States, from the time that the World Bank was formed, has blocked other countries from developing their own food production, and has steered them into producing export crops (non-food crops, tropical crops) [and] remaining dependent on the United States for its grain, so the United States can starve them out if they try to go their own way. So the United States approach to leading the world order is to lead by being the aggressor — to threaten, to hurt other countries; [that is,] not by providing mutual gains [or] by helping them [develop], but by saying, “If you don’t do what we want, we will overthrow you. We’ll have a coup d’état. We’ll do to you what we did with Pinochet in Chile. We’ll do to you what we did with Boris Yeltsin in Russia. We’ll interfere.”

This has been easiest of all in probably the most corrupt region of the world, Western Europe, where the United States Treasury officials have told me that all they need to do is give little white envelopes filled with dollar bills and they’ve been able to control European politics. The United States [is] essentially trying to use its threats [and] its sanctions, and it believes that it can hurt another country.

Behind it all, of course, is the military threat, as you were saying, in Ukraine. But it turns out there isn’t really any military threat by the United states. Not only [have the U.S] and NATO run out of normal military arms, but America really can’t mount a land war anymore. There will never be another Vietnam. There will never be the United States invading another country, or Europe invading any other country, because you’ll never get a population willing to be drafted, [since] the anti-war movement. And without that, America has only one military leader against other countries: the hydrogen bomb. There is nothing in between a targeted assassination attempt and an atom bomb.

That basically is what has enabled other countries, for the first time, to break away. They couldn’t do this back in the 1970s when Radhika and I were first noticing it, because at that point, Indonesia and the Caribbean and Latin America didn’t have the critical mass to go it alone. Now, they [do] have the critical mass to go it alone, thanks to Russia, China, Iran, India. They are able to go it alone. There is only one part of the world that is not able to go it alone, and that’s the United States and Western Europe. They de-industrialized. In their class war against labor, looking for lower-priced labor abroad, they have cut their own industrial labor force, but they’ve also shifted the center of manufacturing, technology, agriculture — everything has shifted to Eurasia and the Southern hemisphere. The United States turns out to have left itself alone. The problem that is frustrating American diplomats is: How are they going to dominate the world without industrial leadership, with debt deflation, with a debt that is much higher than other countries. How on earth can they lead, in a weakening position, without any military?

Radhika: Absolutely. [I think] this whole point you’re making — [that] the United States’ attempt to dominate the world is increasingly failing — the United States turns out to be essentially a giant with clay feet. From the point of view of today, it becomes much more credible to say so. But I’ve been saying, and I think also with a lot of help from Michael’s writings, [that] in reality, when people talk about ‘American hegemony’, ‘American dominance’, ‘American imperialism’ — what we have to realize is that what we are looking at — what the United States has attempted to do for more than a century — is [an] attempt to dominate the world. But this attempt has actually never been successful. The story that I tell in my Geopolitical Economy is actually a rather different story, which does not try to deny the huge extent of the harm the United States has done by its wars, by its economic coercion, by its suppression of attempts of countries to develop. [The story] acknowledges that all these things have happened, but the key point is that the United States has never actually succeeded in exerting its dominance. What we are looking at today — what we are calling multipolarity — [in fact] shows the failure of America to dominate.

What I argue in Geopolitical Economy is that in the early 20th century it was very clear to [the United States ruling elites and] many observers that British dominance over the world economy was weakening, and the United States felt that it was going to take over the torch from Great Britain and be the dominant power in the world. [But] they knew, of course, even then, it was very clear that they would never be able to match the scale of British dominance. They could never acquire an empire (a formal empire) of the size that Britain had. Remember, Britain had an empire ‘on which the sun never set’.

So what [the U.S. ruling elites] decided to do was, instead, lower their sights and say, “We can’t have an empire of this size, but we are going to try to make the dollar the world’s money.” They way they tried to do so after the First World War, and the financial mayhem they caused [is] a really interesting story that I’ve written about [and] Michael has also written about. But, after the Second World War, we are told that “the dollar became the world’s currency'”, but the fact of the matter was, that the first attempt to try to make the dollar the world’s currency fell [afoul] of the very famous Triffin dilemma — which is to say that, since the United States could not export capital — since it had no capacity to do so ([whereas] Britain could export capital because it had an empire, it had an empire from which it drew surpluses) — the United States had no such empire, no such surpluses, so it created dollar liquidity by running deficits. [As] Robert Triffin pointed out, the bigger the deficits, the lower will be the value of the dollar, and the lower will be the attractions of the dollar.

This logic finally worked itself out and the United States was forced to break the dollar’s link with gold because people were ditching the dollar in favor of gold. Countries were ditching dollars in favor of gold, including famous Western allies, European allies. And since then (what Michael and I argued in a recent paper we did called Beyond the Dollar Creditocracy — and by the way this is also my argument in Geopolitical Economy — [since 1971], the dollar has become reliant on a series of financializations, or a series of expansions of purely financial activity, so that the unattractiveness of the dollar for normal economic use (for trade use, and so on) is counteracted by vastly expanding the financial demand for the dollar. And that is why this age (the post-1971-age) of alleged Dollar Dominance has in fact rested on a series of financializations, one after another. It has also been an age of recurring financial crises.

To emphasize: What we are looking at are American attempts to dominate the world, but they are all attempts that have failed. And this is another story that we will tell.

Michael: It’s interesting that when President Biden and the State Department and the media talk about what’s happening in the world, and [when] they describe policy, they don’t talk about anything that Radhika has just said. And they don’t even talk about the fight between [a] unipolar and multipolar world. President Putin talks about that, and [Russian Foreign Minister] Lavrov talks about that, but not the U.S. If you listen to what President Biden and the State Department say, this global fracture is “between democracy and autocracy”. That is how they characterize it. This is Orwellian Doublespeak.

[To them,] ‘democracy’ means a financial oligarchy. (Aristotle, 2500 years ago, wrote a book on constitutions of Greece. He wrote, “All these constitutions call themselves democracies, but they are really oligarchies.” Democracy tends to turn into oligarchy.) So by ‘democracy’, what President Biden means, is a financial oligarchy in control of policy. And what Biden means by ‘autocracy’ is, a mixed public-private economy with strong government support for industry, for technological research and development, for rising living standards, and most of all for providing basic needs: public health, public education, retirement income, transportation — all subsidized to minimize the cost of living for labor so that the economic surplus can go to upgrade education, improve the productivity of the labor force, and do essentially what China has done and what other countries are doing, and what everyone expected industrial capitalism to do in the United States and Europe, but which finance capitalism is not doing.

So you have to go beyond this rhetoric to ask what is really happening. To the Americans, public spending, anti-monopoly regulation, and protection of consumer rights is ‘socialism’. Well, it is socialism, and that’s why in the United States, they’ve done polls, and [found] that most people prefer the word ‘socialism’ to ‘capitalism’. Many people in the United States claim to be socialist, but finance capitalism is not socialism. This distinction, which Rosa Luxembourg called “the fight between barbarism and civilization”, that’s really the fight between democracy and autocracy, with a different vocabulary.

[17:06] Radhika: Let me take one or two of those points.

First, the United States’ claim to lead the ‘democratic world’, to stand for human rights and democracy, sounds increasingly hollow. And this is also really interesting to reflect on why [it sounds increasingly hollow], because the policies that the United States has had to follow in order to exert Dollar Dominance, in order to create the financializations on which Dollar Dominance rests, have tended to undermine the United States’ productive economy. They have tended to divide society because they have created astronomical levels of inequality in the United States and other countries that follow that kind of policy paradigm. And as a consequence they have essentially created the present political breakdown that we witness in the United States, where a character like Trump can get elected president, and then when Biden is elected, he must more or less continue Trump’s policies. So you’re looking at a serious breakdown of democracy in Western countries themselves.

[Second], this is going to be a show about world affairs, and it’s interesting to explain to you how our approach to world affairs differs from the ones that you normally see. So in the study of international relations, some people take a ‘liberal’ point of view (which is essentially what I was earlier criticizing) [characterized by] the globalization, U.S. hegemony, cosmopolitan views of the world economy, with the world economy seamlessly united. [In the ‘liberal’ view,] nations don’t matter, nation-states have become irrelevant, etc.

You can take that point of view. Or, you can take a so-called ‘realist’ point of view in which all nations are out to ‘do down’1 other nations. But in reality, the point of view that we take comes from a very strong tradition of critical thinking that goes back to Marx and Engles but has continued to develop in a big way since then, which is to understand world affairs as the contest between imperialism and anti-imperialism. Trotsky used to call this “uneven and combined development”. Which is to say that the countries that are already developed — the imperialist countries — want to retain the uneven configuration of development in the world, with some countries being developed and other countries less so. But the ones who are less developed, the ones who are left behind, contest this by promoting their own development through policies that are designed to improve their productive capacities and so on.

So what Michael is trying to say when he says that the United States is always trying to prevent development, is basically, for all the talk of Western countries trying to help the development of Third World countries, in reality when Third World countries develop in the only way they can, which is by focusing on productive activity, controlling trade and financial flows and so on (as all successful developers have done, including the United States in its own time) — when they try to do this, the United States tries to force them open. They talk a lot about ‘free markets’, ‘free trade’, ‘openness’ — what does this ‘openness’ really mean? It means that countries should lay themselves open to being dominated by, penetrated by, Western capital, Western corporations, and be open to supplying, cheaply, what the West needs; — namely, commodities, labor, low-cost goods, etc. So this is really a contest of anti-imperialism and imperialism in which, today, the cracks of multipolarity is that the forces of anti-imperialism are winning.

Michael: What Radhika said that is most radical is: America really [is] trying to stop the development of other countries. This may seem surprising to some people (not listeners of this show) but those very words were set into stone in America’s National Security Report, saying that “any other country’s development, to the point where it is independent of the United States, is a threat to the United States”2 and the reason that China is the number-one opponent and “systemic” rival 3 (as they put it) to the United States is that it is developing, and the United States really is against any development except that which American financial interests control and receive the rental earnings and the profits from turning this development into a U.S. monopoly. So, I guess what is going to be really unfolding, in this show and the future, is, we know the aim of other countries is to develop, we know what they want to do, [but] how are they going to actually implement this in policies?

Radhika mentioned my book Global Fracture back in the 1970s, and that was right after the Vietnam War had forced the United States off gold and Saudi Arabia had taken ownership of its oil reserves, and U.S. diplomats already at that time were [concerned to] make sure all the development was U.S.-centered, not foreign-centered. They were in the dark as to how to navigate, because, as ironic as it might seem, I was hired by Herman Kahn at the Hudson Institute 4 to go to the State Department and the White House and the Defense Department to explain how super-imperialism worked. The largest purchase of my book, 2,000 copies, [was] by the CIA, [where it was] an operations manual.

The United States thought that, well, if we can continue to make other countries keep their savings in the United States by buying U.S. Treasury Bills — if we can tell Saudi Arabia and the oil countries that they can charge whatever they want for their oil — [they could] quadruple the price of oil — but they have to keep all of their earnings in the United States, in the U.S. stock market, they cannot buy a major U.S. corporation, [but] the U.S. can buy control of other economies, but no other countries’ investors can buy control of critical U.S. industries. Saudi Arabia can buy minority stock holdings, can buy Treasury Bills — the Japanese were allowed to buy golf courses (that they lost a billion dollars on) — they were able to buy the land under Rockefeller Center (that they lost a billion dollars on) — but they couldn’t really buy American industry. So you had the whole plan for what seemed to be [successfully] making other countries dependent on the United States and U.S. satellites, and getting very little for their dollars. But the fact is, the United States found that it had developed a new kind of imperialism. It wasn’t the old kind of colonial imperialism.

They looked at what happened to Haiti. When [Haiti] bought itself independence from France in 1804, France said, “Yes, we will give you the independence, but you have to reimburse our military invaders for having conquered you. You have to pay them the current value of what they took for free when they took you over.” Haiti for the last 200 years has been a debt peon of France and the international financial community.

The United States said, “We can do the same with other countries. We can make them borrow — base their monetary systems on creating their own credit by U.S. banks, creating their own credit in dollars, and all the interest payments and the capital gains on all of this will be remitted to the United States. We don’t need military colonialism anymore. We know that we can’t have another Vietnam. What we can have is Dollar Dependency.” That is a system that they put in place, and that is the focus of talks between China, Russia, Iran, and the global South, has been de-dollarization. And that is what both Radhika and I have been writing about and focusing on for the last few years.

Radhika: Absolutely. And one of the things I was also reminded [of] by what you were saying: the United States has changed its economic structures very radically over the post-Second World War period, because if you — I remember when I was researching my book Geopolitical Economy, I came across this quote from a major American official at the end of the Second World War, where he says, “Today we account for half of the world’s production, and our aim should be to retain that position of relative dominance” — that is to say, that the United States must continue to account for half of the world’s production. So the rest of the world can only grow insofar as its growth does not outpace that of the United States. But of course that is exactly what happened. It was impossible. One of the things people forget, you know, even major historians such as Eric Hobsbawm for example — when you read the books — such as The Age of Extremes in which he [writes about the] history of the 20th century — he talks as though the United States started growing from the late 19th century onwards; by the eve of the First World War it was a really major producer, and so when it came to become such a dominant producer — when it came to account for half the world’s economy at the end of the Second World War, this was some kind of a completely natural process.

What people entirely forget is that the United States acquired this position of dominance not through some secular process of growth, but because of the war. During the war, the United States essentially grew — as the so-called ‘arsenal of democracy’ — its economy boomed — between 1939 and 1945, U.S. GDP doubled (in about 6 years). It would not double again for another 22 years, even though these were the years of the so-called Golden Age of Capitalism and growth was relatively high. So you can imagine the sort of boost that the war gave the U.S. economy. Plus, of course, if you’re talking in relative terms, the war is boosting the U.S. economy while it is destroying productive capacity in the rest of the world where the war is actually occurring, where the fighting is actually happening. So it was the complex result of this, so there was nothing natural about the U.S. position of dominance.

There are a couple of things one can add to this.

[The first thing is that], today, when people are once again celebrating the United States’ role as ‘the arsenal of democracy’ — it’s really ironic because the United States, both in the First World War and the Second World War, profited in this manner. Many countries (so-called allies) have only recently finished paying off the war debt, [for example]. So the United States essentially has been indebting other countries simply by posing as an ally when in fact it was not an ally.

The second thing is [that] this [should] give some background as to how the U.S. economy has become so reliant on military production [and] armaments production. Why the military industrial complex is such a large part of the U.S. economy.

Michael: Well you pointed, quite [rightly], to the role of debt in all of this. During WWII, the United States used its position of supplying arms to the Allies to force the creation of two institutions — the World Bank and the International Monetary Fund (IMF) — along lines that were opposed by Europe — [which were] designed to, number one, break up the British Empire, under Lend-Lease of WWII, and, under the terms of the IMF, [make] Britain [overvalue] the pound at five pounds-per-dollar, and promise not to devalue it until 1949.

They also insisted that Britain could not maintain its ‘sterling area’. Britain had a ‘sterling area’ that was much like the ‘dollar area’ today. During the war, India and other former colonies had exported raw materials and built up huge government savings in exchange for these raw materials. And, as [members of] the ‘sterling area’, they were obliged to spend all of these savings on British manufactures. But America said, “We want free markets! Free markets means you can spend your money anywhere.” They broke open the British ‘sterling area’ and said, “You can buy goods anywhere”, meaning, from the United States — because with Britain being committed to an [overvalued] pound sterling, and the United States having the industrial capacity, the United States ended up with all of these savings that the British Empire had accumulated. And the United States, under Franklin Roosevelt, signaled [that] Britain was America’s number-one rival. (Britain was in the position that China is in today [in that respect].) So the [British] Empire was broken up, and basically forced into debt in the balance of payments, because Britain could no longer earn its way to dominate the ‘sterling area’ by exporting. It was on the road to deindustrialization.

Meanwhile, the second thing that was important, is that the United States emerged from the war with almost no domestic debt at all. The Depression had wiped out domestic personal lending, corporate lending — there was nothing to buy in WWII in the civilian economy because it was [all] war production. So there was hardly any debt. So, since WWII, [for] every recovery there has been a business cycle in America, Europe, all over the world. Every business cycle recovery has started from a larger and larger proportion of debt-to-GDP. A larger proportion of personal debt to personal income, and corporate debt to corporate income. This is what has essentially made America [spend] so much money on domestic debt service that neither [can its] labor compete with other countries (if you have to pay mortgage debt and personal debt, credit card debt), but American industry is debt-ridden.

Suppose, now, you’re China, Russia, and the Global South. How can they develop their economies in a way that does not simply replicate the American debt overhead? How can China develop its real estate without following the American real estate [model], that, what people thought was increasing middle-class wealth by the price of housing going up and up — all of a sudden, you’re house poor([that is,] you’re spending so much money on your mortgage that you don’t have enough money to buy goods and services). How are China, Russia, and the Global South going to create an alternative economic system that doesn’t simply replicate what the United States has done since WWII, and how are they going to create — to help this — an alternative to the World Bank and the IMF [that] is quite different, and [with] different principles?

[34:09] Radhika: And that brings us to another theme that Michael and I have both collaborated on and written independently about, which is really: What should the structures of finance ideally be? And when Michael poses all these questions — [for example,] how China can organize its financial sector and its economy in such a way as to promote production without creating these debt overheads — in one sense, of course, these are always new questions because economic circumstances change — but in another way, we have models going back at least a century, century and a half — that is to say, that in their own industrialization, major industrial countries, including the United States — Germany, Japan, China today — they have all had financial sectors in the period of their most rapid development — ([for] the United States we are talking about the 19th and early 20th centuries) — in this period they had a very different model of finance. [In that period], the financial sector was structured in such a way as to aid production. Finance was the handmaiden of production. Finance facilitated long-term investment in productive capacity. Finance did not focus on consumer lending and so on. (In fact there was hardly any consumer lending.)

So in all of these ways, finance has actually powered the development of these countries, and finance was subordinated to production. By contrast, Britain has always had a very different financial model [which] — ironically, for the home of the first industrial revolution — actually was not geared to promoting production. It was rather geared to [create] short-term credit for commercial purposes, eventually for speculative purposes, and so on. So this short-term financial model [was] originally British, but [it] has been adopted by the United States through a creeping process of financial deregulation that began in the 1970s and 1980s, and reached a peak in the repeal of the Glass-Steagall Act in 19995 under the supervision of none other than the so-called maestro Alan Greenspan. (I’m sure we will have an episode discussing the role of central banking as well.)

So anyway, this model of finance, which the United States has adopted over the last many decades, is actually the opposite of the sort of financial structures that you need. You need financial structures that are going to aid production, whereas these financial structures actually strangle production. These financial structures actually create the economic inequality which we have seen scaling new heights. And the opposition of the [interests] of finance [as against the interests of] production is so great that we saw, for example, during the pandemic over the last two or three years, while the economy was tanking, stock markets were doing nothing but scaling new heights and [increasing] the wealth of those with the greatest number of financial assets. [These] contrasting models of finance, historically and today, will be another theme that Michael and I will be addressing.

Michael: Well, what’s so remarkable, is that the point that Radhika has just made was well understood in 1914. After WWI broke out, the British press began to write articles about how they thought that they were probably going to lose WWI because of British banking. They said, “Germany has a great advantage over the United States. In Germany, banking is long-term. There is a three-way [relationship] between the German government, the banks, and the large corporations — especially the steel-making and heavy industry for the militaries.”

There was a belief that [with] German industrial banking, [Germany] had been able to industrialize; whereas, the banking [in] England was [still] post-feudal — it was short-term banking, the financial time frame was only short-term, and the British stock market especially was hit-and-run. It was like brokerage in the United States today. They’d put clients into a stock [and] pump-and-dump. That was the British way of making money. But when the British were creating the industrial corporations, they were run by financial managers, just like has happened in the United States with General Electric and other financialized firms. They didn’t take their profits and reinvest in new industrial capital formation; they paid them out in dividends. Instead of industrial engineering they had financial engineering. And the result was that finance in Britain was predatory.

All of this was understood, and it was believed that in the aftermath of WWI you were going to have what Marx had described in Capital [vol. 3], that finance was going to be industrialized, and Marx said, the revolutionary role of industrial capitalism was to get rid of the landlord class and make land rent and natural resource rent part of the public domain, [not] for private absentee owners, and to get rid of predatory finance (English style) and replace it with productive finance. And he believed that this would lead naturally into socialism, with the banks being, if anything, the model of socialist planning and government planning for the economy. And that was actually what was happening in Germany under the Reichsbank. I described this in my book Killing the Host.

Instead, what happened was, with America’s victory, you had the Anglo-American financialization policy that, as you know, brought on the 1929 stock market crash and the 1931 debt cancellation of inter-ally debts and German reparations. So there were two opposing financial systems, and what Radhika is saying is that [what] the Global South and China and Russia are doing today is finally a recognition — a replay — of this same debate between finance capitalism and industrial socialism that you had a century ago.

Radhika: Yes, and there’s another point worth making in connection with the history you were recalling, Michael. So in the United States, like I said, in the late 19th and into the early 20th century you had very different banking structures. And then yes, as Michael said, in the 1920s the financial structure sort of began to evolve towards this British-style predatory short-term [banking]. Of course you also had this enormous boom in consumer lending in the United States in the 1920s — these were the Rolling Twenties as we remember them — and a large part of what made them ‘roll’ was debt-fueled consumption in the United States. [So] there was a brief period [of boom] but then you got the 1929 crash, you got the Great Depression, and you got the depression-era banking legislation — Glass-Steagall chief among them — which really made American banking, U.S. banking, among the most regulated banking sectors in the world. Because you had a system of essentially state regulation of banks. [There was a] sharp distinction between [two types of banks].

[On the one hand, there were] banks that were commercial banks that took the deposits of ordinary customers like you and me, and enjoyed federal deposit insurance, which was the new institution that was created by this depression-era banking legislation. So if you enjoyed federal deposit insurance, which basically allowed ordinary depositors like you and me [to] trust that, if we put a few thousand dollars in the bank, [it] would not disappear if the bank went bust. But, banks that enjoyed this deposit insurance were heavily regulated in terms of how much they could lend, at what interest rate they could lend, what purposes they could lend for, and they were forbidden from speculating in financial markets.

Whereas, [on the other hand,] banks that  did so — banks that speculated in financial markets — the so-called investment banks — were not given federal deposit insurance.

[This] structure of US banking, which allowed US banks to play a positive role in the economy, continued into the 1970s. [It] was then, particularly after the dollar’s gold link was broken, [that] it became gradually clear that expanding dollar-denominated financial activity would be able to counteract the Triffin dilemma to a considerable extent. That’s when the financialization really took off, so you saw vast increases in financial activity in terms of government borrowing, in terms of lending to Third World countries, [and] eventually the stock market bubble, the dot-com bubble, the East Asian financial bubble, and finally the mother of all bubbles which broke in 2008: the housing and credit bubbles. And of course now, nothing has been done in all of these decades — despite repeated financial crises — to regulate American banking structures — or, very little has been done — and as a consequence we today have an even bigger so-called Everything Bubble [within which] anything that even remotely smacks of any lucrativeness is an asset to be acquired. So the United States has undergone quite a transition — and this is important to remember as well.

Michael: Well, what the implication of what you’re saying is: What are other countries going to do to avoid this same problem? Because many other countries followed the US [banking] philosophy. What we’ve been discussing is not at the center of economic discussion, either here or abroad. Well, what has made China so successful, and what is so unique about Chinese socialism, is [that] they have treated money creation, banking, and credit as a public utility.

[The] United States cannot really cure the debt bubble it’s built up really since the 1980s, because if it writes down the debt there will be huge defaults.

[In] 2008 the head of the FDIC Sheila Bair said that Citibank was the most corrupt bank, and incompetent bank, in the country. It was in negative equity, it had wiped out the entire stockholder wealth. President Obama had appointed Treasury Secretary [Robert] Rubin who worked for Obama’s sponsor — he had worked for Goldman Sachs — and Obama was the political lobby [for] Citibank — [so] they bailed out Citibank. [Instead] of letting [Citibank] go under, instead of letting it go under and turning it into a government bank to actually loan money for productive reasons, Obama sponsored the super-financialization of the United States and, since 2008, has traded 9 trillion dollars in subsidy to the financial sector, that is used as 9 trillion to buy control of the industrial sector, to financialize corporations, to [deindustrialize] them and essentially the financial sector has helped destroy industry in the United States.

Well, China is not in this position. It doesn’t have a powerful financial interest to take over the government; just the opposite. China has a very large corporate debt, now, and especially a real estate debt. [But] when its corporations get insolvent, China does not say, “Well we’re going to break you up and you’ll have to be sold to foreign buyers and anyone who can buy them.” China essentially writes down the debt. And it’s easy for it to write down the debt because it’s writing down debt that is owed to itself. There is no private bank to fight it and to lobby against it. The same situation occurs in Chinese real estate right now. There [are] a lot of complaints in China that families have to go into long-term debt in order to borrow the money to buy their housing because their housing has been bid up — like the United States — on credit. How can China lower the price of housing to keep its labor force with low housing overhead so that it can remain competitive and so that it can use labor’s income to buy the goods and services that labor produces instead of paying the banks?

[48:39] Radhika: These contrasts that you’re drawing, Michael, between Chinese financial structures and what American financial structures have become over the last several decades — this is very pertinent for talking about de-dollarization, on the one hand, and the rise of the renminbi, or the yuan (the Chinese currency has two different names) as a major world currency.

Now, there are a couple of things one should say about this. First of all, as far as the de-dollarization is concerned, the fact of the matter is that this is happening because the rest of the world is increasingly becoming aware that participating in the dollar financial system has many disadvantages, including the tendency of the dollar system to incur increasing financial crises and so on. But in addition, there is another point one must make, which is that the dollar system, which rests on the structures of financialization, has been strangling the American economy.

They have been making the American economy less productive. They have been increasing social inequality in the United States. And of course, all of this has also had repercussions for politics. But of course, the way American politics works, you know, it’s “the best democracy money can buy”, so essentially the extremely wealthy interests, which are also those interests which have an interest in financialization, are keeping the system going even though it is having these bad effects on the American population, and even though the dollar system is actually decreasingly attractive to the rest of the world, and therefore we are going to see its demise very soon. So, these interests are keeping it going.

By contrast, in China what you have — people say that the Chinese yuan must be internationalized in the same way as the dollar — and this is where they are making a mistake. Yes, there will be increasing use of the Chinese yuan in international trade, but also you are seeing that the new structures that are emerging are not just about yuan domination. On the contrary, China is signing more and more agreements to trade with other countries in [the other countries’] currencies. So it will also enable the currencies of, say, Iran or India, to become used — in a limited, regulated way — but nevertheless used in international trade. But this will be about trade.

As long as you don’t have a vast investment in the financial bubbles regularly blown up by the American financial system, you don’t need the dollar system, basically. So the yuan will be internationalized in an extremely different way. It will not look the same as dollar internationalization has looked over the last many decades, reliant on financialization. So China — we will see that, but it will look very different. That’s a clarification that must be made.

Michael: Well the question is: How are they going to create an international bank to oversee international reserves that do not really contain the dollar, except some dollars for foreign exchange stabilization? Certainly the first step is going to be bilateral and multilateral currency swaps. China will hold Saudi Arabian [riyal], and Saudi Arabia will hold Chinese yuan, and the result will be the petro-yuan that people have talked about.

The members of the Shanghai Cooperation Organization (SCO) and the allies of China, Russia, Iran, are going to develop mutual currency swaps, and at some point they will join together and create an international bank that will be able to create credit to finance the huge investment in infrastructure, port development, transportation, that we’re so far seeing China take the lead in developing along the old Silk Road and the Belt and Road Initiative. This is going to be coordinated by an international bank so that they can essentially have their economy without much contact with the dollar and the euro, because the dollar and euro have very little to offer — not raw materials, not much technology — they can make specialized machinery for producing computer chips, but basically it requires a whole institutional development, and I’m sure that’s what they are discussing right now, and this is going to be unfolding in future programs that we’ll be discussing.

Radhika: Exactly. We’re nearly at one hour, Michael, so let’s wind down this conversation. Maybe I’ll wind it down by underlining something that you and I argued in our article Beyond the Dollar Creditocracy — [the] dollar system has operated [with] a carrot and a stick. The carrot has of course been the vast financialization bubbles that the United States has blown up regularly in order to invite the rest of the world to buy dollar-denominated assets and thereby increase demand for dollars. And that also has of course been running into increasing contradictions to such an extent that today Michael mentioned earlier the Federal Reserve’s expanded balance sheet.

It went from about one trillion in the early years of this century to about two trillion, then four trillion after the 2008 Financial Crisis, and now it is over nine trillion dollars. The bulk of this money is there because essentially foreigners are not crowding into American asset markets to buy dollar-denominated assets. So those asset markets have to be supported by the Federal Reserve. Of course, eventually [it] can become a sort of self-contained system in which the Federal Reserve continues to inflate the wealth of some Americans, but the rest of the world is decreasingly interested in it.

The other — the stick — has of course been control over commodities. Michael mentioned control over oil. Of course today many other commodities are becoming important — food of course is becoming important. Various resources connected with the production of various ‘green’ technologies, like lithium, are becoming important, so there will be a big attempt to control this, but American attempts to try to keep control over oil have also been slipping6 over the last many decades. Oil prices take a turn of their own. And of course as commodity prices go up, the value of the dollar falls. And so this is another — essentially the reason why commodity prices are going up is because the rest of the world is demanding more because the rest of the world is also developing. And so the development of the rest of the world itself is going to have a negative effect on American attempts to retain purchase.

So the sooner the United States realizes the folly of trying to dominate the world, and focuses on being a productive national economy, the better it will be for Americans themselves. Because Americans have also paid a big price. The world has paid a big price, but so in a lesser way Americans have paid a price for the U.S.’s vain attempts to retain dominance over the world even if it is only by keeping the dollar as the world’s money.

Michael: Radhika, we could have gotten a million dollars from the State Department by keeping this to ourselves and just telling them how the world works.

Radhika: Well I hope instead we get a million viewers. This would be far more rewarding for us. So please watch out for our next show, which we will record in two weeks time and you will see in two weeks time. Meanwhile please also give us your reactions, your suggestions, for topics we might cover. We’ll try to do that as much as we can, and we look forward to talking with you every fortnight from here on. Thanks very much and see you next time.



  1. (do someone down, do down someone) get the better of someone, typically in an underhanded way: if you’re a manager trying to do down a colleague, the best way to do it is to flood them with data. • (do someone or something down, do down someone or something) criticize someone or something: they’re always moaning and doing British industry down.
  2. ‘This National Security Strategy lays out our plan to achieve a better future of a free, open, secure, and prosperous world. Our strategy is rooted in our national interests: to protect the security of the American people; to expand economic prosperity and opportunity; and to realize and defend the democratic values at the heart of the American way of life. We can do none of this alone and we do not have to. Most nations around the world define their interests in ways that are compatible with ours. We will build the strongest and broadest possible coalition of nations that seek to cooperate with each other, while competing with those powers that offer a darker vision and thwarting their efforts to threaten our interests.’ (National Security Strategy October 2022, p. 7)
  3. ‘America’s alliances and partnerships have played a critical role in our national security policy for eight decades, and must be deepened and modernized to do so into the future. NATO has responded with unity and strength to deter further Russian aggression in Europe, even as NATO also adopted a broad new agenda at the 2022 Madrid Summit to address systemic challenges from the PRC and other security risks from cyber to climate, as well as agreeing to Finland and Sweden’s application to join the alliance.’, ibid, (p. 17)
  4. no relation
  5. Gramm–Leach–Bliley Act – Wikipedia
  6. no pun intended